A Survival Guide
to Foreclosure

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When you
stop paying your mortgage, your lender, the bank or
mortgage company, will ultimately start
foreclosure proceedings against you. It means
the holder of your mortgage will secure his interest in
your property by taking the house away from you. In other
words, the lender will repossess your house.
How many months you can be in default, depends on the
lender. Usually between one and three months, since
giving you notice, arranging for the banks lawyer and
arranging an auction sale will take some time. The
sequence is usually governed by State Law. Technically,
the moment you have not paid the mortgage
installment on the due date, you are in default and the
property is at risk.

If in
a forced sale, the market value of your home is less
than the amount you owe on the mortgage, the lender
can apply for a deficiency judgement, demanding,
with a court order, that you reimburse him for the amount
of the shortfall between the proceeds from the sale of
your home and what you owe to the lender.

Both
proceedings, foreclosure and deficiency
judgements, will have a serious impact
on your credit worthiness and your ability to
finance any purchase of a property in the future. It will
also stay on your credit record for at least seven years.
This, in a tight job market, will have a direct impact in
your ability to land a new job.

To
avoid Foreclosure, these Steps you have to take
immediately!

When you
have a problem making your payment, call
your lender immediately and then follow
the call up with a letter. Explain
your situation clearly. Do not delay writing this
letter! This letter has to include

All financial information
about your loan/mortgage,

Your account number;

The monthly payment amount
you have to make and the date on which it
was due;

Do
not, under any circumstance, abandon your home
or move out of your home. The lender, and any
other source of assistance will stop helping you,
if you move out of your home!

Contact a
HUD
approved Housing Counseling Agency! Their
offices are local and can be found in most larger
communities. Arrange an appointment with a housing
counselor to explore your options.
Technically, they are a valuable resource and are
generally free. The advantage of
using them is that they are, by and large, well
informed about services and programs offered by
the Government as well as private and community
organizations. They often also offer credit
counseling.

Do
not sign anything, you do not understand fully.
Get legal advise from a competent and
neutral person! Remember, signing
over your deed,, does not necessarily relieve you
of your obligation to your lender.

If your loan is a VA guaranteed mortgage,
do the same and call the VA office closest to you.

How to
handle people who want to take advantage of you!

The key
is not to panic and not to fall for
people offering quick solutions and scams.
Because, when you are in a foreclosure situation, the
world is full of people who offer "to
help"......."if you only sign here.........but
it has to be done quickly, otherwise the opportunity is
gone!"...... Some of the people working these scams,
call themselves foreclosure or credit
counselors, usually
offering to perform services for a fee. A few
precautionary thoughts below should help you avoid
the scammers:

When
people come to your house and make promises, get
those in writing on a signed piece of paper, not
on some photocopy. Have them send you a
signed letter, explaining what they promise. Then
check it out with your lender and HUD housing
counselor.

Do not
sign anything, especially not "on the
spot". Always mull over things two
or three days, while you check them out
as suggested below. Do not let yourself
be put under pressure by people who
could exploit your vulnerability. Do not
negotiate on the "door step". One of
the favourite tricks of the scammers is that they
are not coming into the house ("my
supervisor does not want that!"), but
urge you, to sign something quickly! DO
NOT FALL FOR THAT!Your
house is important to you,
and you cannot make deals about it, on your door
step!

Check everything
with a lawyer,your HUD housing counselorand your mortgage company, before
entering any deal that involves your house. You
could lose the house and still be liable for the
remaining mortgage.

Check
out the agent, counselor or whatever
other euphemism the people use to describe
themselves, with the State Attorney Generals
Office, the Better Business Bureau, the local
Real Estate Commissions and the local District
Attorney's Consumer Fraud Section. Even though,
Better Business Bureaus or the local Real Estate
Commissions vary greatly in the quality of their
knowledge and are not always helpful or
knowledgeable, they might have heard of scams
that make the "local rounds". The key
is never to rely on a single source of
information.

Do
not make assumptions about a formal
release from your mortgage liability. If you have
a question, make sure, you put it in writing. Do
not negotiate of get information on the phone
without confirmations in writing. Then
make sure that your understanding of the
status quo is confirmed by the mortgage holder.
Do not rely on what third parties, except
qualified legal experts that are in your pay,
tell you about process and how they can solve the
problem. You may be able to renegotiate some
terms with the original mortgage holder, such as
the remaining time to maturity of the mortgage
and, maybe even interest rates.

A
few Alternatives that you could explore with your Lender

Because
current numbers of foreclosures are extraordinarily high,
lenders might be willing to do things outside the options
which are normally open to you. Remember, mortgage
lenders want performing loans, not properties on
which they will spend large amounts of money to secure
them, and sell them off.

Try to renegotiate
the mortgage terms. This will generally
be possible, when the original lender still holds
the whole, or a residual value in the mortgage.
If the mortgage has been sold on, this will be
more difficult. But under present circumstances
this might be possible.

Points
of negotiation could be

The length to
maturity (i.e. the time between
now and when you have paid off your
mortgage). Often you can extend a 15 year
mortgage to 30 years, though at this
point it is rare to find banks that
extend mortgages beyond 30 years.

The rate of
interest paid on your mortgage.

You might suggest
to the lender that you continue
to pay interest at a new reduced rate,
without paying back principal for a
certain number of years (say five). And
then renegotiate again after at the end
of that period.

Do not agree
to prepayment penalties.

See
that a new mortgage agreement
is drawn up, redeeming the old mortgage and
replacing it with a new one, rather than agreeing
to an amendment of the old agreement. The
important issue for you is that you have
negotiate payment terms which you will be able to
fulfill.

One of
the more traditional options is Forbearance
Relief: Your mortgage holder may be
willing to arrange a payment plan
which will bring your account current in a
relatively short period of time. This implies
that your old mortgage continues with a
temporary payment modification. This
usually only works if you have a single mortgage
on your property.

You could
try to negotiate with the lender to stay in the
house, pay what you can afford, and attempt a Pre-foreclosure
Sale. This requires a market in which
you can actually sell properties. It would avoid
the effects of foreclosure on your credit
history. Although, the lender has a non
performing loan, he does not have an
empty house and someone else will make the effort
and pay the costs to sell the house.

There is
also the option of a Deed-in Lieu-of
Foreclosure. This means you give the
property to the lender in return for the full
redemption of the mortgage. For this to work, you
cannot have a second mortgages or liens
on your property. State law may also
affect this option. Therefore, obtain a lawyers
advise!

You
might, under current circumstances, negotiate
a moratorium on repayment for a limited
time period. Although, the mortgage holder has a
non performing loan, if you can show to him that
your distress situation is temporary
and that there is an end in sight within a
reasonable time, he might be willing to
look at this option. You might have to pay rent,
which does not count towards your mortgage
payments. Remember, at this time most mortgage
lenders, provided they hold your mortgage
are willing to make any reasonable deal that does
not have a high risk of writing off a large
proportion of their mortgage.

The key to avoiding foreclosure is
to contact the mortgage lender as early as possible, so
that you can work out arrangements which minimize the
risk to you losing the home and, for the lender, most
importantly, of foregoing part or all of the money he
advanced you.

Do consult
a lawyer or a HUD approved housing counseling agency on
anything you do with your home and the associated
mortgages!

Good
Luck!

*

Source: This page is partially based on
material from the US Department of Housing and
Urban Development

Here is some reading that will be helpful.
Remember, the more you know about the whole process of
foreclosure, the better you can handle the steps and deal
with the people, who are your adversaries!